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Cases to Watch in 2016

Over the past five years, as the result of the America Invents Act (“AIA”) and several Supreme Court decisions, U.S. patent law underwent a number of important changes. Recently there has been increasing criticism that, due to some of these changes, the patent system is now unfairly biased against patent owners. A number of cases currently pending before the Supreme Court and the Federal Circuit have the potential to shift the power dynamic between patent owners and potential infringers. For example, the Federal Circuit’s recent decision in Lexmark International, Inc. v. Impression Products, Inc.—allowing patent owners to exert control over products after they are sold—is generally regarded by practitioners as “a win for patent owners.” Although the Lexmark decision could signal a return of power to patent owners, the case is reportedly being appealed to the Supreme Court, which may not agree with the Federal Circuit. In addition to Lexmark, below is a summary of cases currently pending before the Supreme Court and the Federal Circuit that could significantly affect the rights of patent holders in 2016.

While these patent cases are sure to be closely watched, there are also a number of copyright and trademark cases to keep an eye out for this year. In fact, and as summarized below, there is the possibility of circuit splits on some very interesting issues, such as the constitutionality of a provision in the Lanham Act, and the applicability of the Copyright Act’s grant of compulsory licenses to internet streaming services.

As part of the AIA, Congress created administrative procedures to allow parties to challenge the validity of issued patents before the Patent Trial and Appeal Board (“PTAB”). Although post-grant review procedures before the PTAB were originally designed as a vehicle to weed out low quality patents,1 critics ranging from pharmaceutical companies to former Federal Circuit Chief Judge Randall Rader have all indicated that the PTAB may be too effective at invaliding patents, primarily due to the PTAB’s broad interpretation of claims.

On January 15, 2016, the Supreme Court agreed to evaluate and address this issue by granting a petition filed by Cuozzo Speed Technologies LLC. The petition argued that the PTAB improperly invalidated Cuozzo’s patent because it had construed the claims by giving them their “broadest reasonable interpretation,” instead of the narrower “Philips Standard” used in district courts. In its petition, Cuozzo described PTAB proceedings as “surprisingly lethal,” and noted that 85 percent of PTAB decisions invalidated some or all of the patent claims reviewed. Cuozzo explained that:

A primary reason for the high cancellation rate is that, although IPR was expressly designed to be a surrogate for litigation, the Board does not use the same claim construction standard as federal courts. Rather than construe the claim in an issued patent according to its plain and ordinary meaning, as a federal court would be required to do, the Board gives the claim its broadest reasonable interpretation, which is a protocol used by examiners in reviewing patent applications. Of course, the broader the interpretation of the claim, the more extensive the array of relevant prior art—and in turn the more likely that the claim will be held invalid in light of that prior art.2

If the large numbers of patents invalidated by the PTAB are in fact due to the broader standard, that number may be reduced by a Supreme Court decision that rejects the “broadest reasonable interpretation” standard. The petition also asks the Court to consider whether the PTAB’s “decision [] to institute an IPR proceeding is judicially unreviewable.”3Notably, nine amicus briefs were filed by various industry groups and companies, only one being in favor of the respondent.4

In October 2015, the Supreme Court agreed to review both cases in order to clarify the standard for awarding enhanced damages for willful infringement under 35 U.S.C. § 284. Under the current two prong test set forth by the Federal Circuit in In re Seagate Tech., LLC, a patent owner must establish that there was an objectively high likelihood that the infringer’s actions constituted infringement, and that such likelihood was either known or should have been known to the accused infringer.5 The petitioners in both Halo and Stryker, however, argued that the Federal Circuit standard was nearly impossible to prove, and urged the Supreme Court to replace it with a less rigid test. In particular, Halo’s petition argued that the willfulness standard is no different than the “overly rigid” Federal Circuit standard for awarding attorneys’ fees under Section 285 of the Patent Act—a standard that the Supreme Court rejected in Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014).

After the Supreme Court lowered the bar for awarding attorneys’ fees in Octane Health, the success rate of § 285 motions had increased. Thus, if the Supreme Court also decides to lower the bar for proving willful infringement, patent owners in many cases could be in line to collect much larger awards. Oral argument took place on February 23, 2016 and the petition hints at one desired outcome: “Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court . . . rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases[, in Octane Fitness]?”6

In this case, Life Technologies’ petition requested that the Supreme Court review the Federal Circuit’s interpretation and application of induced infringement under 35 U.S.C. § 271(f). The Federal Circuit had concluded that “actively induce” can be construed as simply as “cause,” such that a single entity can “actively induce” itself to infringe a patent under Section 271(f)(1) by shipping a kit component from the U.S. to its foreign facility where complete kits are assembled and sold.7

In its petition, Life Technologies argues that the Federal Circuit failed to correctly apply the Supreme Court’s directive in Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007), and as a result, erred in holding that a single entity can “actively induce” itself to infringe a patent under Section 271(f)(1) and in holding that the entity could be liable for foreign sales based on a single commodity component supplied from the U.S. The Supreme Court has yet to decide whether it will grant certiorari to consider this case and the issues presented. A conference was held on September 28, 2015, and the Solicitor General was invited to file a brief on October 5, 2015.

McRo Inc. v. Bandai Namco Games (No. 15-1080, Federal Circuit)

Over the past year and half, a number of software patents have been invalidated as a result of the Supreme Court’s decision in Alice v. CLS Bank, which held that implementing an abstract idea using a computer does not create patent-eligible subject matter without more. Relying on Alice, a district court invalidated McRO’s patent on lip-sync animation technology, which McRO appealed to the Federal Circuit. A decision has yet to issue, but a panel of Federal Circuit judges heard oral arguments in December 2015. During the hearing,8 the judges appeared to be particularly focused on how the Supreme Court’s directive in Alice v. CLS Bankshould be applied to software patents in general.

After Alice, it appears that at least some types of software patents may be invalid as unpatentable subject matter, but there is considerable confusion over how Alice should be applied—resulting in a number of inconsistent district court decisions. This important decision provides the Federal Circuit with the opportunity to clarify the standard. Patent owners, practitioners, and district court judges alike are waiting for the Federal Circuit to issue guidelines on differentiating between software that is patentable from software that is not.

In another case related to patentable subject matter in the life sciences sector, on December 2, 2015, the Federal Circuit denied Sequenom Inc.’s petition for rehearing en banc.9 The Court had earlier affirmed the district court’s finding that Sequenom’s patent for a fetal DNA test was patent-ineligible because it was directed to a natural phenomenon. But the Federal Circuit indicated that it reached its conclusion only because it was required to do so by Supreme Court precedent, and acknowledged that Sequenom’s fetal DNA test was both “a significant contribution to the medical field,”10 and a “breakthrough invention[.]”11Furthermore, in separate concurring opinions,12 two judges appeared to request that the Supreme Court revisit its earlier decision, at least in the case of newly developed technology in the life sciences.13 This case is extremely important to those seeking patent protection in the life sciences, biotechnology, and pharmaceutical industries, and is likely to be appealed to the Supreme Court.

In this case, the Federal Circuit initially held that an order placed with a pharmaceutical contract manufacturer can be an offer for sale that will have an invalidating effect on a later-issued patent with claims that cover the subject of that sale. On November 13, 2015, the Federal Circuit granted Medicines’ petition for rehearing en banc and ordered further briefing, in pertinent part, on the issue of whether the Court should overrule or revise its precedent set forth in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no “supplier exception” to the on-sale bar of 35 U.S.C. § 102(b).14 This decision could impact any company or individual that might not have the resources to manufacture their inventions in-house and relies upon suppliers for some portion of a later-patented product. Oral arguments and a decision are anticipated in 2016.

On January 4, 2016, the Federal Circuit heard oral arguments15 on how the Supreme Court’sDaimler AG v. Bauman, 134 S. Ct. 746 (2014), decision may affect personal jurisdiction over generic pharmaceutical manufacturers in Hatch-Waxman cases. In Daimler AG, the Supreme Court instructed that for proper exercise of general personal jurisdiction, a defendant should have connections “so ‘continuous and systematic’ as to render [it] essentially at home in the forum state.”16 The district court in Acorda found general personal jurisdiction over Mylan as the company had voluntarily registered to do business in the state, and specific personal jurisdiction based on Mylan’s Paragraph IV letter to the Delaware-incorporated Acorda.17 The district court in AstraZeneca found specific personal jurisdiction on a similar basis, but held that Mylan’s registration to do business in Delaware was not sufficient to establish general personal jurisdiction.18 During oral arguments, the panel focused on whether Mylan’s forum contacts should be considered in light of the “uniqueness of Hatch-Waxman.” A decision is expected in 2016.

This case addresses the appropriate standard in awarding attorneys’ fees to a prevailing party under Section 505 of the Copyright Act. In 2013, the Supreme Court found that Kirtsaeng’s practice of importing foreign-made textbooks and selling them to students in the United States at a profit was protected by the first sale doctrine of the Copyright Act.19 On remand, however, the Second Circuit affirmed the district court’s denial of Kirtsaeng’s motion for attorneys’ fees under Section 505.20 In his petition for certiorari to the Supreme Court, Kirtsaeng identified the current circuit split for considering fee requests, emphasizing the four different standards currently employed by federal courts: (1) whether the prevailing party’s successful claim or defense advanced the purposes of the Copyright Act (9th and 11th Circuits); (2) a presumption in favor of attorneys’ fees for a prevailing party (5th and 7th Circuits); (3) the four “non-exclusive factors” listed in Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994) (3rd, 4th, and 6th Circuits); and (4) the 2nd Circuit’s placement of “substantial weight” on the objective reasonableness of the losing party’s claim.21

These cases involve whether online television streaming services are eligible for compulsory licenses. Section 111 of the Copyright Act provides that television companies must allow cable systems to retransmit their programming for a set rate.22 The Central District of California did not see a reason to differentiate traditional cable and online-based services, finding FilmOn’s service – a technological replication of the now bankrupt company, Aereo – qualified as a “cable system” entitled to a compulsory license.23 The District of D.C., however, denied FilmOn’s identical argument, finding Section 111 only applicable to customary cable companies that “both receive and retransmit broadcast signals to paying subscribers through wires, cables . . . and other types of communication channels.”24 The decisions have been appealed to the 9th Circuit and D.C. Circuit, respectively.

In their opening brief, filed in the 9th Circuit on January 27, 2016, the appellant networks stress the “specific and limited definition” Congress gave the term “cable system.”25 The appellants note that Congress has “taken responsibility for adapting the Copyright Act to other specific retransmission technologies when it has determined changes are warranted” but has “never revised the definition [of cable systems] in Section 111 to cover Internet-based retransmission services.”26 These cases may have a large impact on the way television content is packaged and sold to customers in the future, and will likely be followed by “cable-cutters” looking to escape traditional cable subscriptions. Moreover, the 9th Circuit appeal presents a very real possibility of a circuit split on the issue, particularly with current 2nd Circuit precedent that says Section 111 does not apply to online streaming services like FilmOn.27

These cases involve the constitutionality of a provision in the Lanham Act (Section 2(a)) regarding the federal registration of scandalous, immoral, or disparaging marks.28 The district court in Blackhorse affirmed the Trademark Trial and Appeal Board’s (TTAB’s) decision to cancel the Washington Redskin’s registration on the team name, finding that trademark registrations are “government speech and is thus exempt from First Amendment scrutiny.”29 The Court was also keen to highlight that the issue of the case was trademark registration and not the use in commerce of the mark itself, pointing out that the Lanham Act provides a “cause of action for the enforcement of unregistered trademarks.”30

In December, however, the Federal Circuit en banc in In re Tam found the disparagement portion of Section 2(a) to violate the First Amendment under both strict scrutiny and intermediate scrutiny levels of review.31 Particularly, the Court noted that, although the denial of a registration on those marks the government deems offensive or disparaging does not prevent the trademark owner from using the mark as unregistered, it does deny the trademark owner of “truly significant and financially valuable benefits” that “federal trademark registration bestows.”32 While the In re Tam opinion is limited only to the disparagement portion of Section 2(a), members of the Court expressly noted that other portions of the Lanham Act may be equally unconstitutional.33 The district court’sBlackhorse opinion has been appealed to the 4th Circuit, while a petition for certiorari is due in In re Tam by the end of March.

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